Surprise, surprise, surprise, the market doesn’t want to go down. If you’ve been following my work in my various forums you know it’s not that big of a surprise. But to a lot of people it is. Forget the segment of the community that was just looking for a bigger correction, many people were expecting a crash! For me, I would have thought the market would make an intermediate level high in January and given us more than it did on the way down. But if you really go over my notes in this column going back to the 4th quarter of last year, I’ve been comparing this market to the 1982 version where prices hit a peak and went sideways.
The problem is we never know what size a trading range could really be. Since the Feb. 5 pivot, markets have behaved decent if not spectacular and we’ve had no real reason technically save for one day to think the market was topping. It was now three Thursday’s ago when some of the charts hit the 61% retracement where it looked like they could elect to turn but as we know by the next morning it was almost as if nothing happened. We’ve had hints the market really didn’t want to go down. Most notably was the two turnaround Thursdays we’ve noted in this space. If that didn’t tell you anything, nothing will. The last thing I’m going to say about crashes is the market gave you absolutely no evidence it wanted to crash. For a crash to have materialized, you needed the banks to lead down. The worst they’ve gone is sideways through this whole sequence and now they’ve turned up.
Banks have turned up and doing even better than semiconductors which continue to move moderately higher. However on Thursday and Friday they put in a bullish polarity confirmation with the high from Feb. 22. Expect them to go higher still. So if banks are going up and semis are going up the market isn’t going down. I have to tell you this is an improving technical condition. Yes, I know volume is on the light side but in everything I look at the only area of concern I have is on a chart of Copper. Copper is hitting the same long term resistance it hit earlier in the year and it is close to turning down again. Other than that, the dollar had a chance to go higher but couldn’t. It will continue its corrective activity against the uptrend (see chart below). On this chart you’ll see a moderate downtrend taking shape. It’s been volatile the past few days. It put in what looked like a bullish reversal on Wednesday and Thursday but I told my subscriber base it didn’t have good symmetry on the readings at that low. On Friday it left an upper tail and it doesn’t surprise me at all. As you can see the net result of leaving those upper tails is starting to pick up steam as the purple lines have been violated.
On the hourly it left another lower high with a good candle reversal so the market is safe at least for Monday.
The Russell 2000 appears to be on breakout but its smashing into long term resistance. I don’t think it will go much higher in the current sequence without retesting support just below. But let’s explore this concept of a Russell leading to the upside. I’m not going to come out and say we have a new secular bull market. Its way too early for me to be talking in those terms. That being said, there are only two ways for the market to go up. You can have a bear market rally or even a cyclical bull in a secular bear. If the bear market is large enough, the cyclical bull really is nothing more than a glorified bear market rally. The other possibility is a new secular bull market. What’s the biggest difference between a cyclical and secular bull? In a bear market rally, it’s usually the same tired names that led to the upside from the old bull market. Everything has to have a technical bounce. But a real bull market is spawned by new technology and new leadership. Microsoft and Intel used to be penny stocks. They used to be up and comers that ushered in the new wave of technology in the 80’s and 90’s. Most of us were not looking or not interested when Mister Softie was really trading at $5.
All I’m saying right now is the stock market is giving us an encouraging sign for the future with Russell leadership. Bad things don’t happen to the market when new leadership is trying to emerge.
But before I paint too rosy a picture we have to deal with the time cycles for March. They are here. Right now, we are squarely in the one year anniversary window of the bottom. We are also coming to 34 days off the top on Tuesday (SPX) which coincides with the end of this window. Next week we have the 610-trading-day window lining up with the Fed meeting. On Friday we had a better than expected jobs reading. The number was down 36,000 where some reports were looking for a number as high as 75,000. Since the technical picture last week was good, it should be no surprise that we had a decent report. On the other hand I heard Steve Liesman say that in the survey if a person worked as little as 1 hour over the 2 week survey period, they are counted as employed. Folks, I have no idea how they come up with their figures. So using the jobs number as a way of gauging the recovery may be a case of wishful thinking at best. I believe I have a better way.
I’m no economist but I do think the charts do a better job of anticipating the economy better than any economic think tank ever did. Let’s take the market cycles. We know the low on Feb. 5 came at the 233-day window to the bottom last year in the SPX. What does that mean? It means this uptrend over the past year still has influence over the market. That means to the degree we see cycle activity line up with the pattern is the degree of confidence we can have that the trend is still intact.
Next week we have the 610-day trading window to the October 2007 bear market top. If the bear market still has influence, we should see it in the cycles that are upcoming. Let’s use a simple analogy. Throw a rock in a lake and from the point of impact there is a ripple effect, right? Close to the point of impact there are lots of waves. The further out we go, the impact is less and less until there are no more ripples. We are 610 days out from the point of impact. We are about to find out if there will be a ripple effect. To the degree there are any ripples will tell us how much influence the bear market still has.
I’ve discussed two conditions in the market this week. First we have a positive indication in the Russell which potential is more positive than most people realize or willing to admit to themselves. That will be counterbalanced by the ripple effect of how much gas the bear has left in the tank. In the coming weeks we will not only see the technical trading situation emerge but more than likely the best economic indicators play their hands as well. It’s an exciting time.
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